New York Takes Early Steps to Probe Cohen, Trump Firm

(Bloomberg) -- New York State prosecutors have taken preliminary steps to open criminal investigations into President Donald Trump’s former lawyer, Michael Cohen, and possibly the president’s business, according to people familiar with the matter.

New York Attorney General Barbara Underwood sought a referral in recent days from the New York Department of Taxation and Finance to launch a criminal tax probe into Cohen’s activities, according to one of the people, who declined to comment publicly on the request. Permission from the agency is needed for the attorney general to open a criminal investigation.

And in what could be a more threatening act to the president, Manhattan District Attorney Cyrus Vance Jr. is weighing whether to pursue criminal charges against the New York-based Trump Organization and two top officials, according to the second person.

The possible probes follow Cohen’s Aug. 21 guilty plea in Manhattan federal court to crimes including tax fraud, lying to a bank and campaign finance violations. Cohen admitted in his plea that he failed to pay approximately $1 million in taxes and that he recouped more than $400,000 from the Trump Organization after making a $130,000 hush payment to an adult film star who claimed to have had a 2006 tryst with Trump.

State Crimes

The moves may pose significant new peril for Trump, whose 2016 campaign is under investigation by Special Counsel Robert Mueller for its ties to Russia. Unlike in federal cases, Trump has no power to pardon crimes charged by state prosecutors and no authority to shut down a state investigation into his business -- something he’s said he wouldn’t tolerate from federal investigators.

Criminal inquiries into Cohen’s payments and how they were handled could lead New York prosecutors into Trump Organization finances that have remained largely private because the president has declined to disclose the tax records provided by previous office holders. It could also spur others in Trump’s orbit to talk to investigators.

Lanny Davis, an attorney for Cohen, declined to comment. Calls to the Trump Organization and a White House spokesperson weren’t immediately returned. Representatives for Underwood and Vance declined to comment or couldn’t be reached for comment.

The New York Times first reported the possibility of the investigations.

Sham Invoices

In his guilty plea to five tax charges, Cohen admitted he failed to pay about $1 million in federal taxes over several years. It is a crime in New York to fail to pay state taxes, and Underwood’s office has authority to pursue such cases. New York’s strict double-jeopardy laws don’t apply to tax crimes.

The attorney general in June sued Trump’s charitable foundation, claiming it persistently broke state and federal laws through improper political activity, self-dealing and failing to follow basic fiduciary obligations. The civil lawsuit is pending.

Cohen also pleaded guilty this week to violations to federal campaign laws, admitting in his plea that he recouped more than $400,000 from the Trump Organization stemming from a 2016 hush payment to adult film actress Stephanie Clifford. According to court papers, two Trump Organization employees approved Cohen’s reimbursement requests based on falsified invoices, and the company falsely recorded the reimbursement as a legal expense.

Vance’s office is weighing whether to investigate the company and the individuals for possible books and records violations, one of the people said. If Vance proceeds, it is expected that he will coordinate his investigation with federal prosecutors to make sure his office is not duplicating or interfering with their efforts, the person said.

The sham invoices detailed in the federal case appear to be falsified documents that would violate New York state law, said Alfredo Mendez, a former chief of financial crimes for the New York Attorney General’s office who’s now in private practice. But to rise to the level of a felony charge, state prosecutors would have to determine whether Trump Organization executives knew the documents were bogus and if they were created to cover up other crimes.

--With assistance from Christian Berthelsen, Shahien Nasiripour and Jennifer Jacobs.

To contact the reporters on this story: Erik Larson in New York at elarson4@bloomberg.net;Greg Farrell in New York at gregfarrell@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Elizabeth Wollman

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